Introduction to Personal Financial Statements

Question 1

Who uses personal financial statements?

Answer 1

An individual or group of related individuals, including a husband and wife, or a family unit. They are not prepared for a business enterprise.

Question 2

When are personal financial statements needed?

Answer 2

They are typically needed in conjunction with personal borrowing, personal financial planning, contract requirements, or legal requirements

Examples: Part of an application for a major loan to be backed by personal assets.
As required by law for elected and other public officials

Question 3

What financial statements are typically appropriate for personal financial statements?

Answer 3

1. ) Statement of Financial Condition (Balance Sheet) - Required
2. ) A statement of changes in Net Worth - Optional, but usually provided

Question 4

Are comparative statements required for Personal Financial Statements?

Answer 4

Not required

Question 5

Which financial statements are not appropriate for Personal Financial Statements?

Answer 5

1. ) Income Statement

2. ) Statement of Cash Flows

Question 6

What basis of accounting is the Statement of Financial Condition for Personal Financial Statements based on?

Answer 6

Accrual accounting using fair value (current value)

Question 7

How is “Current Value” defined?

Answer 7

The amount at which the buyer and seller would be willing to exchange an item. Not a forced sale.

Question 8

What should the Statement of Financial Condition for Personal Financials report?

Answer 8

1. ) Assets at estimated current value
2. ) Liabilities at estimated current amounts
3. ) Personal net worth as the difference between 1 and 2
4. ) Estimated income taxes are calculated as if the assets had been realized and liabilities had been liquidated

Question 9

What is the purpose of a “Statement of changes in Net Worth” for personal financials?

Answer 9

To show the amounts and causes of the changes in net worth for an individual, a husband and wife, or a family unit during a period. Recognized on accrual basis.

Question 10

What format does the personal statement of changes in Net Worth use?

Answer 10

The Standard Change Format

\+Increases in Est. Values of Assets
-Decreases in Est. Values of Assets
-Increases in Est. Values of Liabilities
\+Decreases in Est. Values of Liabilities
=Net Worth at 12/31/XX

Question 11

When can noncancelable commitments to pay future sums be presented at discounted amounts for personal financials?

Answer 11

1. ) For a fixed/determinable amount
2. ) Are not contingent
3. ) Do not required future service of performance

Question 12

What disclosures are required for personal financial statements?

Answer 12

1. ) Name of individuals covered in statements
2. ) Statement that assets are reported at their estimated current value and liabilities at their estimated current amounts
3. ) Methods used to estimate current values and current amounts
4. ) Description of any joint ownership assets in the statements
5. ) Any concentration of significant investments
6. ) For significant investments in closely held businesses, the name and nature of the business, level of ownership, and summary of financial info about the business
7. ) Description of any intangible assets and useful lives
8. ) Description of any future interest or rights reported as assets
9. ) Methods and assumptions used to compute provision for income taxes. I.E., difference between FV of assets and their tax basis
10. ) Unused Operating Losses, CL Carryforwards, and other unused deductions
11. )Information about receivable and debt, including maturity dates, interest, etc.
12. ) Description of noncancelable commitments, including their nature and amounts.